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Cyclically adjusted budget balances: an alternative approach

Author

Listed:
  • Bouthevillain, Carine
  • Cour-Thimann, Philippine
  • van de Dool, Gerrit
  • Hernández de Cos, Pablo
  • Langenus, Geert
  • Mohr, Matthias
  • Momigliano, Sandro
  • Tujula, Mika

Abstract

Estimates of cyclically-adjusted budget balances, correcting actual government budget balances for business cycle fluctuations, are produced by many institutions, including the European Commission, the IMF and the OECD. This paper presents an alternative approach for the cyclical adjustment of budget balances. The approach is based on a disaggregated method for the calculation of the cyclical component of the budget balance. In this approach, the effects of changes in the structure of demand and national income on government revenue and expenditure are captured. Cases where the various macroeconomic bases are in different phases of the cycle or exhibit fluctuations of different magnitude are taken into account in this way. The computation of the cyclical components of these macroeconomic bases is based on the Hodrick-Prescott filter and takes into account the latest evidence presented in the literature about the properties of this filter. The paper also presents new estimates of the elasticities of individual budget items with respect to the relevant macroeconomic variables. The method is used within the ESCB for the estimation of cyclically adjusted budget balances of the EU countries JEL Classification: E32, E60

Suggested Citation

  • Bouthevillain, Carine & Cour-Thimann, Philippine & van de Dool, Gerrit & Hernández de Cos, Pablo & Langenus, Geert & Mohr, Matthias & Momigliano, Sandro & Tujula, Mika, 2001. "Cyclically adjusted budget balances: an alternative approach," Working Paper Series 77, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:200177
    Note: 339030
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    References listed on IDEAS

    as
    1. Beveridge, Stephen & Nelson, Charles R., 1981. "A new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the `business cycle'," Journal of Monetary Economics, Elsevier, vol. 7(2), pages 151-174.
    2. Marianne Baxter & Robert G. King, 1999. "Measuring Business Cycles: Approximate Band-Pass Filters For Economic Time Series," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 575-593, November.
    3. Torben Mark Pedersen, 1998. "The Hodrick-Prescott Filter, the Slutzky Effect, and the Distortionary Effect of Filters," Discussion Papers 98-09, University of Copenhagen. Department of Economics.
    4. Paul van den Noord, 2000. "The Size and Role of Automatic Fiscal Stabilizers in the 1990s and Beyond," OECD Economics Department Working Papers 230, OECD Publishing.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    business cycles; cyclical adjustment; fiscal policy; government budget;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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